Can Consumers Trust Their Retirement Intuition?

Too many consumers leave retirement planning to chance.

Dear Old Dad propagates wildflowers and has created a nice little business that not only nets a few dollars but keeps him outdoors, physically healthy, involved with people, and able to hone his business acumen.

My mother, too, is very busy. In particular, she enjoys her monthly book club and her leadership role with her master gardening associates, with whom she has helped coordinate and execute several large-scale programming events.

Neither of them seems to miss the world of work. Mom’s wry remark, when asked how one knows it is time to retire, is simply, “You just know.”

Intuition may be part of the retirement decision with regard to timing, but it also must be part of the financial planning process that leads to life away from the job.

There are many unknowns for consideration: life span, economic conditions, physical ability to remain working, and return on investment.

How many of these choices do consumers base on intuition? How many of their retirement decisions are simply left to chance? What impact do financial planners make?

Findings this week prompt consideration of various retirement decisions to be made, some of which are not intuitive.

‘The only real valuable thing is intuition.’–Albert Einstein

“Retirement confidence levels still indicate a general uneasiness among workers in the prospect of securing a financially comfortable retirement,” notes the Employee Benefit Research Institute’s “2014 Retirement Confidence Survey.”

During 2014, the percentage of those “confident about having enough money for a comfortable retirement” is up from the historical lows of 2009 to 2013.

“Eighteen percent are now very confident… while 37% are somewhat confident… and 24% are not at all confident.”

This study further reports that confidence levels increase among those with a plan. Rising property values and a strong stock market also contribute to the positive atmosphere.

Reasons consumers do not save include cost of living and existing debt.

“Retirees can use the equity sitting in their homes to pay for their daily expenses, out-of-pocket medical bills, or nursing care,” observes a Boston College blog post.

This potential source of retirement funding, however, is sometimes not even a thought, as “one in four Medicare recipients has less than $12,250 in home equity.”

Plus, home equity holdings are “top heavy,” as 5% of 2013 Medicare beneficiaries have more than $398,500 while half have less than $66,700.

This gap is expected to grow, and by 2030 home equity “will rise less than 10% for those with mid-level or median amounts of equity.”

This resource examines a pension gap: “In 2010, only 19% of individuals ages 50-58 whose household incomes were less than 300% of the poverty line participated in a pension of any kind at their current jobs, compared to 56% of those above 300% of poverty.”

Important factors affecting the pension gap include rate of employment, percent of employers offering pension benefits, pension eligibility, and the percentage of those choosing to participate.

It is suggested “policies such as automatic enrollment that focus on pension eligibility” will not close this gap. Rather, those with higher pension value typically have higher income and education levels and an existing history of pension participation.

Variables such as employer size, union status, and time spent on the job also are noteworthy.

Consumers need not rely only on intuition in making retirement choices as “Financial professionals can play a critical role in helping clients navigate the actuarial calculation of matching a savings and withdrawal plan with a projected life expectancy… A planner can boost savings rates while helping clients think through issues they’d probably prefer to avoid.”

A further plea for help is issued because financial literacy rates decline as consumers age.

Once retirement is realized, consumers still need to maintain fiscal awareness. Many money problems in retirement are the result of lack of planning and communication, according to USA Today in “Seven Big Mistakes Couples Make in Retirement.”

Topics that deserve planning and communication include:

Expectations of what retirement will look like;

How blended families will make accommodations for children of previous marriages in financial planning efforts;

Contingency plans;

Each person’s responsibilities regarding financial planning;

Expenses for health care or long-term care;

Health-care proxy agreements; and

The importance of early financial planning to avoid retirement funding shortfalls.

How can you help members keep these considerations at the top of mind?

Working consumers at all stages of life must consider their retirement choices carefully, whether they are starting a job or dealing with the financial realities of a retirement lifestyle.

Intuition, although a component in making some retirement choices, should not be the main driver. Rather, intuition should prompt consumers to make prudent plans in the first place, to hopefully address the unknowns.

As Jonas Salk observed, “Intuition will tell the thinking man where to look next.”

The NCUA’s final field-of-membership rule was published Wednesday, making it effective Feb. 6. The rule, finalized by the NCUA board in October, facilitates consumer access to credit unions and provides credit unions with more flexibility.